Impact of Qard-al-Hasan (interest-free loan) program in reducing multidimensional poverty: an evidence from the southwest Bangladesh

Purpose - This paper aims to investigate the effectiveness of Qard-al-Hasan (QH) or interest-free loan in reducing multidimensional poverty through examining Fael Khair Waqf (FKW) program as a case. Design/methodology/approach - A Multidimensional Poverty Index (MPI) approach has been used in this study, which was conducted over 1,600 households including 1,200 program households in 40 villages and 400 control households in 20 villages of 8 districts in the south-western region of Bangladesh. Findings - It is found that 38.5% of sample population was multidimensional poor with deprivation of above the cutoff score. However, FKW participants were relatively less multidimensional poor. It was 35.3%. Hence, it is argued that the FKW is an effective program in terms of poverty reduction as it has contributed to higher economic outcomes for their participating households. The econometric result also suggests that the likelihood of the participants of FKW to be MPI poor is around 1.5 times lower than the nonparticipants, and the result is significant at 1% level. This indicates that program has a positive impact in reducing multidimensional poverty. Practical implications - The analysis in this paper would fill the literature gap by investigating the link between application of QH and poverty alleviation. It will also guide academicians, researchers and decision-makers to design evidence-based policy to alleviate poverty. Originality/value - To the best of the authors’ knowledge, there has been no empirical work in Bangladesh on the effectiveness of QH in poverty reduction considering an MPI approach. Hence, this study is a unique contribution to the literature of Islamic social finance.